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School of Management and Entrepreneurship

Gautam Budh Nagar, U.P., 201314

Written analysis and Communication I

Assignment 1: Kanpur Confectioneries Private Limited (A)

Submitted to

Prof. Gita Chaudhuri

By

Komal Verma

1410120016

8 November 2014

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Memo

Date: September 20th

, 1987

To: Mr. A. Gupta, Chairman& Managing Director, KCPL

From:Komal Verma, Executive assistant, KCPL

Subject:Acceptance or Rejection of APL proposal

Please find the attached report with analysis of various options and recommendation on APL

proposal.

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SUMMARY

SITUATION ANALYSIS:

KCPL is a family business

It is in glucose biscuits business

KCPL- Positioning

Market change analysis

Competitor analysis

Pearsons contract

APL offer

PROBLEM STATEMENT:

How to minimize the losses of KCPL and emerge as a national leading brand?

OPTIONS:

1. Accept APL Proposal

2. Reject APL Proposal

3. Strengthen the brand MKG

4.

Wait for Pearson to increase the order

CRITERIA:

1. Revenue & Profit Margin

2. Family values and vision of founder

3. Time

RECOMMENDATION:

Based on the analysis of various options, I will recommend Accept APL Proposal.

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SITUATION ANALYSIS:

Kanpur confectioneries private limited (KCPL) is a family business started in 1945 by Mohan

Kumar Gupta in Jaipur, Rajasthan. It started with production of sugar candies under the brand

name MKG and later extended to glucose biscuits venture in 1970.

At that time, the biscuit business market was growing at more than 15% per annum and entry inthe industry is easy because of low investment and low skilled labor requirement. The production

process was as well as the main raw material sugar is common in both the business lines.

In 1973-74 KCPL reached second position in the market with monthly sales of 110 tonnes.

MKGbecame a popular brand in northern region and its biscuits were known for their quality,

crispness and affordable prices. The consumers were middle class families and semi urban areas.

In 1980-81 KCPL doubled its capacity from 120 tonnes to 240 tonnes per month but its average

monthly production under the MKG biscuits is 120 tonnes which implies surplus of capacity. It

was incurring loss of Rs. 141,000 (Exhibit 1).

Organized and unorganized sectors were giving high competition. Though business market isdominated by two national players but startup of 70 units in unorganized sector is a big concern.

They imitate the packaging style or sell biscuits with same sounding brand names. The cost of

labor and raw materials were also increasing but KCPL cannot increase its prices as it does not

have a premium image. Another problem is uneven production due to absenteeism of workers.

KCPL could not withstand competition due to which sales and profit margins declined in both

biscuits as well as candy business, so it decided to close the candy line in 1985. KCPL was not

proactive in nature and its marketing was weak. It was just following the market trend.

To offset its surplus production capacity and minimize losses KCPL entered into a contract with

Pearson Health Drinks Limited in 1985 which does not put any constraint to existing KCPL

business line. Pearson placed an initial order of 50 tonnes biscuits with a conversion rate of Rs.3

per kg after reimbursing fully the cost of materials. Now the utilized KCPL capacity became 170

tonnes and 70 tonnes still remain unutilized. But Pearson did not get encouraging market

response to Good Health biscuits and they were seen high priced.

In 1987, APL to reduce its cost of manufacturing was interested in promoting contract

manufacturing units (CMU) so it offered to place KCPL an initial order of 70 tonnes of Glucose

biscuits per month. The initial contract was of 3 years with conversion rate of Rs 1.50 per kg and

reimbursement of raw materials expenses.

PROBLEM STATEMENT

How to minimize the losses of KCPL and emerge as a national leading brand?

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OPTIONS:

1. Accept APL Proposal

2. Reject APL Proposal

3. Strengthen the brand MKG

4.

Wait for Pearson to increase the order

CRITERIA FOR EVALUATION:

1. Revenue & Profit Margin

2. Family values and vision of founder

3. Time

EVALUATION OF OPTIONS:

OPTION 1: Accept APL Proposal

CASE1: Pearson continues

Revenue & Profit Margin: If KCPL accepts APL proposal it will be utilizing its full capacity of

240 tonne per month and cut down on its losses. APL recommended changes in KCPL processes

and equipment that has to borne by KCPL, this may reduce the profit margin but surely will

increase the quality

Family values and vision of founder:KCPL may lose its independence and it will also affect

the emotional connect negatively. The vision of emerging as a leading national brand could not

be turned to reality

Time:APL may not wait for long and give order to some other company.

CASE 2: Pearson discontinues

Revenue & Profit Margin:KCPL will not be utilizing its full capacity, 50 tonne will remain

unutilized. There will be a loss of Rs.3000 (Exhibit 3)

Family values and vision of founder: KCPL will not be able to live the dream of Mr. Mohan

Kumar.

Time:APL may not wait for long and give order to some other company.

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OPTION 2: Reject APL Proposal

Revenue & Profit Margin:KCPL will not be utilizing its full capacity, 70 tonne will remain

unutilized. There will be a loss of Rs. 6000 (Exhibit 2)

Family values and vision of founder: It has all the power to make decision and independence is

intact.

Time:No Time constraint

OPTION 3:Strengthen the brand MKG

Revenue & Profit Margin:The production capacity will not be used completely and will have a

loss of Rs.141,000. To strength the brand KCPL might have to introduce new product or do

marketing which will incur more cost

Family values and vision of founder:KCPL will have a chance to become national brand andstrengthening the brand will strength the emotional connect

Time:KCPL must act proactively and use time efficiently

OPTION 4: Wait for Pearson to increase the order

Revenue & Profit Margin:The production capacity will not be used completely. Revenue and

profit margin will depend on the size of order placed.

Family values and vision of founder:Pearson didnt put any constraint on the MKG business

line, it still have the chance to achieve the vision

Time:It is uncertain when Pearson will increase the order size

RECOMMENDATION:

KCPL should accept the APL offer. The response to Pearsons biscuits is not very encouraging

so it is unlikely that it may increase the order size. APL is providing less conversion rate as

compared to Pearson but it also recommending the process & equipment changes that will

increase the performance of process and quality of product.

ACTION PLAN:

1. Accept the APL contract of initial order 70 tonnes.

2. Notify Pearson about the new contract with APL, in case it discontinues then the surplus

capacity can be used for producing more MKG products.

3. MKG can use the APL influence to enter the other regional markets.

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EXHIBITS

Exhibit 1: KCPL operates only MKG

EXHIBIT 1 : Details of 'KCPL' Monthly Operations in 1986-87

Dimension MKG

Sales per month (tonnes) 120

Selling Price per tonne (Rs) 18,100.00

Total Sales Revenue (Rs) 2,172,000.00

Price of Maida consumed (Rs) 900,000.00

Price of Vanaspathi consumed (Rs) 624,000.00

Price of Sugar consumed (Rs) 288,000.00

Preservatives and Packaging costs (Rs) 120,000.00

Casual Labor cost (Rs) 36,000.00

Permanent Salary (Rs) 275,000.00

Interest per month (Rs) 10,000.00

Other fixed commitments (Rs) 60,000.00

Total Cost Incurred 2,313,000.00

LOSS -141,000.00

Exhibit 2: KCPL operates MKG and producing for Pearson

EXHIBIT 2 : Details of 'KCPL' Monthly Operations in 1986-87 with Pearson offer

Dimension MKG and Pearson Remarks

Sales per month (tonnes) by MKG 120Selling Price per tonne (Rs) 18100

Total Sales Revenue (Rs) from sales of MKG 2172000

Order(tonnes) by Pearson 50 Pearson : initial order

Conversion Rate (Rs)per kg 3

conversion rate paid by Pearson (50 tonne) 150000

Price of Maida consumed (Rs) 375000

Price of Vanaspathi consumed (Rs) 260000

Price of Sugar consumed (Rs) 120000

Preservatives and Packaging costs (Rs) 50000

Total Raw material cost 805000 reimbursed by Pearson

Total sales revenue due to Pearson 955000

Casual Labor cost (Rs) 15000

Profit to KCPL due to Pearson 135000 conversion rate - casual labor

Total Profit/loss to Pearson -6,000.00

profit due to Pearson and loss due to

MKG

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Exhibit 3: KCPL operates MKG and acting as CMU for APL

EXHIBIT 3 : Details of 'KCPL' Monthly Operations in 1986-87 with APL Offer

Dimension KCPL & APL

Sales per month (tonnes) by MKG 120

Selling Price per tonne (Rs) 18100

Total Sales Revenue (Rs) from sales of MKG 2172000

Initial order per month (tonnes) 70

Conversion Rate (Rs)per kg 1.5

Conversion Rate 70 Tonnes by APL 105000

Total Sales Revenue (Rs) 2277000

MKG: Price of Maida consumed (Rs) 882000

MKG: Price of Vanaspathi consumed (Rs) 600000

MKG: Price of Sugar consumed (Rs) 276000

MKG: Preservatives and Packaging costs (Rs) 120000

MKG: Casual Labor cost (Rs) 36000

MKG: Total Variable Cost 1914000

APL: Price of Maida consumed (Rs) 480200

APL: Price of Sugar consumed (Rs) 152950

APL: Price of Vanaspathi consumed (Rs) 326666.6667

APL: Total cost 959816.6667

APL: Casual Labor cost (Rs) 21000

Costs to APL per conversion charges 148098

APL:Income (Loss) -43098

MKG: Income (Loss) 40,098

Total: Income (Loss) -3,000